(Updates with closing prices, aluminium technicals)By Eric OnstadLONDON, Jan 25 (Reuters) - Zinc prices hit their highest inthree months on Friday on worries that weak refined output inChina could send the global market into deficit.Lead also hit a three-month peak after inventories dwindled,while the wider industrial metals market was boosted by asliding dollar."The big question in zinc is smelter utilisation in China.It's really finely balanced, it's on a knife-edge," said OliverNugent, analyst at Citigroup in London."If you make a tiny change in your assumption for
utilisation this year, you swing from a balanced market to a bigdeficit."
Price dynamics in London and Shanghai futures markets hadopened up an arbitrage window, so investors were buying on theLondon Metal Exchange to send to China, Nugent added.That showed up in inventory data on Friday, with weeklyChinese zinc stocks rising and LME levels falling.Benchmark LME zinc reached its strongest since Oct.24 at $2,679.50 a tonne before settling in closing open outcrytrading at $2,673, up 1.3 percent.
* ZINC STOCKS: On-warrant LME zinc inventories , those not earmarked for delivery, have tumbledby half this month to the lowest levels since October 2007.Stocks on the Shanghai Futures Exchange climbed17.2 percent to 34,510 tonnes over the past week.
* LEAD: Three-month LME lead climbed 1.7 percent toend at $2,109 a tonne, its highest since Oct. 15.
* LEAD STOCKS: LME lead inventories have sheda fifth over the past two weeks, sliding to 82,975 tonnes, theirlowest since June 2009.
* DOLLAR: Giving a boost to metals, the dollar index tumbled from its three-week highs in the previous session, astraders' focus shifted to the Federal Reserve's policy meetingnext week when the U.S. central bank is expected to leaveinterest rates unchanged. A weaker dollar makes commodities priced in the greenbackcheaper for buyers using other currencies.
* COPPER: Three-month LME copper jumped 2.3 percentto finish at a one-week high of $6,056 a tonne. Some dealerspointed to short-covering ahead of the Lunar New Year holidaysin China next month.
* ALUMINIUM TECHNICALS: Aluminium has formed a dailyshooting star, which hints the recent rebound was corrective,St?(C)phanie Aymes, head of technical analysis at Societe Generale,said in a note."Thus, holding below $1,900/$1,917, expect an initialpullback towards the hourly channel at $1,846/$1,836 and eventowards recent lows at $1,816/09."
* PRICES: Aluminium closed 1.5 percent higher at aone-month peak of $1,919.50 a tonne, nickel gained 1.7percent to $11,965, the highest since Nov. 2, while tin was the only one in the red, falling 1.2 percent to $20,680.
* For the top stories in metals and other news, click or <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^Top base and precious metals analysis - GFMS ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Additional reporting by Tom Daly in BeijingEditing by Mark Potter, David Goodman and Andrew Cawthorne)